CFPB drives auto loan costs higher

By Frank Guinta

Published: January 8, 2016

The NH Auto Dealers Association visited me in Washington, D.C., this fall. Whether at the capital or a Granite State roundtable, President Peter McNamara and members usually have one thing on their minds: the Consumer Financial Protection Bureau.

Currently, auto dealers can negotiate lower rates and fees with lending companies, in order to offer customers the best possible deals. A competitive market benefits most buyers. However, the CFPB claims that dealers’ flexibility to offer low financing rates disproportionately harms minorities. Sen. Elizabeth Warren’s comments in support earned her four Pinocchios, its lowest rating on the truth meter, from the Washington Post.

Even so, the agency issued a notice of liability to auto dealers. The Wall Street Journal estimates that the CFPB’s efforts to restrict competition will raise the price of the average car loan by $586. That may not seem like much to a federal agency with a half-billion dollar budget, but to a middle-class family of four, the figure amounts to about a month’s worth of groceries.

Federal interference could drive prices even higher, preventing millions of Americans from purchasing affordable, reliable transportation. Small businesses, including minority- and women-owned, would likely lose customers, and in turn, employees.

That’s one reason Congressman David Scott, my colleague in the U.S. House of Representatives, a Democrat, joined me to introduce the Reforming CFPB Indirect Auto Financing Act of 2015, which would force the CFPB to reconsider its findings.

The African-American member of the House Financial Services Committee, where I also serve, understands the agency’s potential impact on car buyers and dealers of every race and ethnicity.

In November, our bill, H.R. 1737, passed the House by a super-majority of Republicans and Democrats, voting 332-96 in favor, despite a presidential veto threat.

Just days after the large, bipartisan vote, the Financial Services Committee released a report describing the many reasons, legal as well as economic, why legislation to rein in the CFPB is so necessary.

The report explains that the agency’s findings of auto lenders’ liability is based on shaky legal ground. The report reveals that the CFPB relied on faulty data and scientific analysis to prove the theory, called “disparate impact,” and concealed inconvenient facts, which undermine its argument, from public view.

Lacking solid evidence to regulate the auto loan market, the CFPB turned to backroom political pressure. The committee report suggests the CFPB may have coordinated with the Federal Deposit Insurance Company to pressure Ally Financial, at the time seeking FDIC approval for a business model change, to agree to an $80 million settlement with the CFPB as a precondition.

Because the agency relies on faulty data, rather than actual plaintiffs, to pressure lenders, in two years of litigation the CFPB has not paid a cent to its hypothetical victims, instead keeping the lion’s share of settlement money to itself. The agency’s true purpose, according to CFPB officials whom the committee quotes at length, is a “nondiscretionary form of dealer compensation.”

In other words, bureaucrats would like to set a high, flat loan rate for everyone. And apparently, the CFPB is willing to circumvent due process to obtain the dubious goal. H.R. 1737 calls on the CFPB to retract its findings and start over, taking into consideration up-to-date census data, applying verifiable analysis, and factoring in the economic impact of new regulations, while doing so with full transparency and public input.

Bipartisan members of Congress, representing diverse districts, have joined to protect our constituents’ access to competitive financing, as well as small businesses and jobs in our communities. To expand access to consumer credit and grow the economy, we will continue to hold the CFPB to account.